Markets rise on hopes for another Federal Reserve bailout

Dow shot up 100, advancers 2-1 ahead of decliners & NAZ added 16.  The Financial Index gained 1¼ to the 203s, just below its 3½ month high.  The MLP index was off a fraction in the 391s & the REIT index rose 1+ to the 264s.  The MLP index is down 6 this week after its recent run.  Junk bond funds were mixed to higher & Treasuries slid lower.  Oil had its 4th weekly gain as Tropical Storm Isaac strengthened in the Caribbean Sea on a path that may threaten crude production in the Gulf of Mexico.  Gold was little changed.  Its strength comes from bets against getting the euro debt mess squared away.

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Treasury yields:

U.S. 3-month	0.091%
U.S. 2-year	0.267%
U.S. 10-year	1.675%

CLV12.NYM

...Crude Oil Oct 12....

96.14

... 0.13

(0.1%)

Photo:   Bloomberg

Big Ben said the central bank has the ability to take additional steps to boost the economy.  “There is scope for further action by the Federal Reserve (FED) to ease financial conditions and strengthen the recovery,” Bernanke said in a letter dated Aug 22 to Darrell Issa, the chairman of the House Oversight & Government Reform Committee.  Bernanke repeated the statement from the FOMC  Aug 1 meeting that the FED will provide “additional accommodation as needed.”  He has an opportunity to expand on his views in an Aug 31 speech at the annual economic symposium in Jackson Hole, Wyoming.  He reiterated remarks to Congress that monetary policy “is not a panacea” and that other gov policy makers should “examine” steps they could take to foster growth.  Asked if political pressure would limit the FED’s ability to raise interest rates, Bernanke said the central bank will be “steadfast in its adherence” to promoting stable prices & maximum employment & that he is “confident” the FED has the “tools to normalize the stance of policy at the appropriate time as the strength of the recovery improves.”  What else can he say?

Bernanke Sees More Scope for Easing to Spur U.S. Economy

Photo:   Bloomberg

European meetings continue.  Chancellor Merkel said that Germany will stand behind the Greek gov as it struggles to overhaul the economy, rebuffing European critics who advocate Greece's exit from the €.  Merkel said the conditions for Greece’s intl bailouts remain in force & she is “deeply convinced” Prime Minister Samaras will make every effort to solve the country’s problems.  The goal of austerity measures is to help Greece reach “the light at the end of the tunnel.”  “I want Greece to stay in the euro zone and that’s what I’m working for,” Merkel said after meeting Samaras.  “Fulfilling commitments and expectations will lead to a return of confidence in the euro zone.”  Merkel’s backing for Samaras & comments lamenting a rift between Germany & Greece are the strongest attempt yet to restart relations between the 2 main actors in the sovereign- debt crisis that is now nearly 3 years old.  They’re also a rebuke to members of her own coalition & others who question Greece’s willingness to reform & call for the country to be kicked out of the euro bloc.  “What I want is to bring the two realities that have emerged back together into one reality,” Merkel said.  “Now it’s the task of those who have political responsibility in Europe to bridge that gap.”

Angela Merkel Backs Samaras on Greece’s Euro-Zone Future




Photo:   Bloomberg

The US economy continues to lumber along.  Demand for capital goods such as machinery & communications gear dropped in Jul by the most in 8 months, a sign manufacturing will contribute less to the economic expansion.  Bookings for non-military capital equipment excluding planes slumped 3.4%, according to the Commerce Dept.  Total orders for durable goods, those meant to last at least 3 years, jumped 4.2%, paced by a 54% surge in demand for civilian aircraft.  But possible tax increases & spending cuts may prompt companies to rein in spending, while a global economic slowdown threatens overseas sales of companies.  The Federal Reserve has signaled it is prepared to take further steps to sustain the recovery if growth doesn’t pick up.  Shipments of capital goods, used in calculating GDP, were unchanged after rising 1.5% in Jun.

U.S. Capital Goods Orders Decline Most Since November

There was not a lot of news driving prices higher.  But hope springs eternal.  Maybe Big Ben will utter magical words & throw out more money.  After one week of talks in Europe, little was expected & less accomplished.  I think all the leaders have agreed not to yell at each other in front of TV cameras.  But problems remain starting with heavy duty austerity cuts in Greece so It will get more bailout funds.  Today's rally may have had had more to do with shorts covering long positions going into the weekend, especially when any kind of announcement can come out of Europe.  Dow is 250 below its 2012 high, shown in the chart below.

Dow Jones Industrials

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